By Shochis Natrajan

India Ratings and Research (Ind-Ra) has assigned RDC Concrete (India) Private Limited (RDC) a Long-Term Issuer Rating of ‘IND A-’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based limits

-

-

-

INR150

IND A-/Stable/IND A1

Assigned

Non-fund-based limits

-

-

-

INR130

IND A1

Assigned

Term loans

-

-

FY24

INR400

IND A-/Stable

Assigned

Analytical Approach: Ind-Ra has taken a consolidated view of RDC and its subsidiary Neptune Readymix Concrete Private Limited while arriving at the ratings as both the companies operate in the same line of business and have strong legal, operational and strategic linkages between them.

KEY RATING DRIVERS

Significant Revenue Growth with Modest Margin Expansion: RDC’s revenue grew at a CAGR of 41% over FY16-FY19 to INR7,592 million (FY18: INR5,547 million), on account of greater commercial focus in obtaining new clients, and successful expansion plan across various cities led by the new CEO who took charge in early FY17. In addition, improved demand in the real estate and construction businesses, led to the revenue growth. The year-on-year increase in revenue in FY19 was driven by a 36% yoy growth in sales volume to 1.98 million cubic metres.


The EBITDA margin increased to 4.9% in FY19 (FY18: 2.9%), although remains modest, owing to operational efficiencies and better absorption of fixed costs resulting from increased scale of operations. FY19 financials are provisional in nature.


Diversified Geographical Presence: Over the years, RDC has diversified its geographic reach from predominantly being a southern India ready mix concrete (RMC) player to a pan India player. RDC is geographically well diversified having significant presence in south (52% of sales), followed by western (18%), eastern (16%) and northern (15%) regions. The diversification has resulted RDC to gain around 6% market share in India and around 12% market share in the core markets next to cement integrated pan India players Ultratech Cement Limited (‘IND AAA’/Stable), Prism Johnson Limited (‘IND A-’/Positive), Nuvoco Vistas Corporation Limited (‘IND AA’/Stable) and ACC Limited, and has made it the largest independent RMC manufacturer.


Strong Promoters; Additional Financial Flexibility: Ind-Ra derives comfort from the promoters and private equity investors’ True North Trusteeship Private Limited (True North), who demonstrate track record of holding controlling stakes its portfolio companies and extend continued support to them. Ind-Ra derives comfort from True North’s domain expertise and operational experience in managing consumer goods marketing companies. RDC benefits from financial flexibility by being a part of the True North group. The promoters have provided a letter of comfort to the lenders and in the past have also helped the company in a timely manner through infusion of funds.


Improvement in Credit Metrics: In FY19, RDC’s credit metrics were strong with net leverage (net debt/EBITDA) improving to 1.38x (FY18: 2.23x) and interest coverage (operating EBITDA/gross interest expense) to 4.12x (2.24x), due to the strong revenue growth and improved EBITDA generation. The agency expects the credit metrics to remain stable over the medium term on account of steady profitability and capex funded largely by internal accruals.

Adequate Liquidity:
RDC has been generating positive cash flow from operations since FY14 (except FY17), resulting from efficient working capital cycle management with net working capital cycle being short at 6 days in FY19 (FY18: negative 1.8 days). However, the company has a long gross working capital cycle (FY19: 110 days, FY18: 108 days), attributed to elongated receivable period, as its major customers are from real estate and construction sectors. As a result, its average use of the working capital limits was 95% for the 12 months ended May 2019. The company has a prudent accounting policy to create timely provisions for doubtful/risky debtors. Ind-Ra expects the liquidity to remain comfortable over the medium term, backed by limited repayments, and stable profitability and working capital cycle, coupled with the presence of additional parent support, if required.

High Competitive Intensity:
The company faces intense competition from the large integrated players and also from several unorganised players, owing to lower capital intensity and low value addition nature of the RMC business. 


RATING SENSITIVITIES

Positive: A significant improvement in the business risk profile and scale of operations while improving/maintaining EBITDA margins on a sustained basis will lead to a positive rating action.

Negative:
Deterioration in the liquidity profile on account of high working capital requirement/increase in debtor level and/or declining profitability resulting in a liquidity score below 1.3x on a sustained basis, could lead to negative rating action.


COMPANY PROFILE

Set up in 1993 by Unitech Constructions Ltd and RDC Concrete Singapore, RDC is the largest standalone RMC company in India with 43 RMC plants across the country. In 2005, RDC was acquired by True North when it had five RMC plants and one paver block plant with operations in North India.


FINANCIAL SUMMARY


Particulars

FY19 (Provisional)

FY18

Revenue (INR million)

7,592

5,547

EBITDA (INR million)

374

163

EBITDA margin (%)

4.9

2.9

Net Leverage (x)

1.38

2.23

Interest Coverage (x)

4.12

2.24

Source: RDC, Ind-Ra



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Shochis Natrajan

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001788

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121